Minn. Credit Score Law Seen As Insurer's Reprieve

By E.E. Mazier

NU Online News Service, May 8, 10:43 a.m. EST?The insurance regulator of Minnesota views the credit scoring bill recently signed into law in his state as a mere reprieve for insurers.

Although the law signed by Gov. Jesse Ventura does not ban insurer use of consumer credit scores outright, Commissioner Jim Bernstein said he is glad to have "a tough law that has teeth."

The new statute prohibits insurers from rejecting, canceling or not renewing automobile or homeowners insurance policies solely on the basis of a consumer's credit scores, which is a number derived from an individual's credit history.

The statute also requires insurers to produce evidence that their use of credit scoring is legitimate, lawful and fair.

Mr. Bernstein has stated that he intends to "set the bar very high" for insurers wishing to continue the practice of using a car or homeowner's credit history as an indicator of whether the owner will file a claim.

"We're going to be asking companies not just to show us the formula, not just the weights and variables that they use, but to provide a definitive explanation as to why credit scoring works," he declared.

Mr. Bernstein said it is "high time" the insurance industry looked at credit scoring and its impact on the public.

He added that in accordance with the new law, insurance companies will have to back up their long-standing claim that a consumer's credit score reflects his or her ability to operate a motor vehicle or maintain property safely and responsibly.

The industry, he said, insists that, "individuals with higher credit scores are more responsible with their financial behavior and that this translates into their driving or their responsibilities as homeowners?but we have seen no other evidence that that is true," he stated.

Mr. Bernstein said he will require each company to file with his department the methodology, rationale and factors used in a credit-scoring system. He also stated that credit-scoring methods that incorporate gender, race, nationality or religion in their model will be prohibited.

Mr. Bernstein stated that one point he has continued to press is how a random event such as a rainstorm, hailstorm or windstorm can "know who has a better credit score and who doesn't."

Mr. Bernstein also revealed that legislative leaders in Minnesota have made it clear that if insurers cannot "deliver as they say," the legislator will "be back next year with a ban" on the use of credit scores.